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How to invest in artificial intelligence

The government has pledged millions of pounds in funding for artificial intelligence. We examine whether there are opportunities for investors from the growth of this sector.

The value of investments can fall as well as rise and you could get back less than you invest. If you’re not sure about investing, seek independent advice.

What you’ll learn:

How artificial intelligence is already part of our daily lives.

Why there is growing investment in artificial intelligence.

Why the technology sector can be particularly volatile.

The growth of artificial intelligence is expected to have a huge impact on our society and economy. Amongst the latest developments, a growing number of the major technology companies are entering the voice assistant market.

There is already widespread use of voice-powered personal assistants such as Amazon’s Alexa and Google Home, with Apple, Microsoft and Samsung some of the other retailers to offer their own version, with Facebook rumoured to be currently building its own.1

The UK government has said that artificial intelligence (AI), ranging from driverless cars, to virtual assistants and machines that may be sophisticated enough to take over our jobs in years to come, will create “seismic global change”. It wants the UK to be a leader in technology and innovation, aided by the announcement of a £75 million investment to improve advancements in AI in last year’s Budget.2

Recent decades have already seen significant developments in the AI sector, from Facebook’s AI-powered image recognition system which enables users to automatically tag friends on Facebook photos, to streaming service Netflix giving personalised recommendations on what to watch, whilst online retailer Amazon gives suggestions as to what to put in your online shopping basket.

The growth of AI over coming years will see greater focus on new technologies, as firms seek to develop AI in its many guises, with one of the biggest changes expected to be driverless cars on UK roads by 2021. The driverless car industry is predicted to be worth around £28 billion to the UK economy by 2035, creating 27,000 jobs.3

Here, we examine the growth of the AI sector, and how investors may benefit from the development of new technologies.

Bear in mind investing in the technology sector can be particularly volatile, and it can be particularly difficult to predict how companies will perform. Facebook’s recent data scandal and the company’s loss in market value as a result is one example of the sector’s risk.4 Of course, with all investments there is the risk that the value could fall and you get back less than you put in.

The rise of artificial intelligence

The AI market is growing rapidly, and could be worth $46 billion within the next three years, according to the International Data Corporation, based on anticipated annual growth rate of about 54%.5

The growth of this sector is attributed to corporate investment, with research by consultancy and advisory service Deloitte finding that more than half of UK businesses plan to invest £10m in digital technologies by 2020.The 51 organisations surveyed expect to use this money to invest in AI, cloud, robotics, blockchain, analytic and virtual and augmented reality.6

Meanwhile, independent scientific academy The Royal Society is calling for more research over the next five to 10 years as part of its machine learning project, to ensure the UK makes the most of opportunities that might be found from investing in AI.7 The technology behind AI is expected to boost the growth of many industries, with the government saying in a white paper that the greater investing in AI will “drive productivity across the economy”.

Many industries are already using AI to boost growth and for specialist use with, for example, image recognition systems becoming increasingly important in healthcare diagnostics. Computers are being used by doctors to analyse patient’s symptoms, diagnose medical conditions, and find new medicines. Scientists are also making new discoveries using AI, such as finding patterns within data sets generated by the Large Hadron Collider, the world’s largest particle collider, built by the European Organization for Nuclear Research (CERN).8

Some industries are even turning to AI to entirely replace jobs. According to Oxford University and Deloitte, more than a third of jobs in the UK are likely to be automated within the next few decades, particularly those on manufacturing production lines around the world.9

China has ambitions for a machine-led workforce in some of its major factories. It has announced plans to become the leader in this area by 2025, taking advantage of key aspects of technology to automate factories, and reduce the need for human employees.10

Going forwards, expectations of what AI can do are high, with even universities offering courses to meet the growing need for qualified graduates in this area. For example, it’s now possible to study robotics, visualisation, and neuroscience, and a rising number of students are expected to enrol in specialist masters courses related to AI.11

Ways to gain exposure to the AI sector

Over the coming decades, machine-learning technologies are expected to increasingly become part of our lives, transforming the way we live and work, and this could provide opportunities for investors.

However, it’s particularly important to take a long-term view when investing in new technology, and expect some volatility along the way. The technology sector isn’t for the faint-hearted, as it is a specialist area with a higher than average degree of risk involved.

Among the biggest investors in AI include Alphabet, Facebook, Amazon and Microsoft. However, investing in individual shares is a risky approach, as you are relying solely on the performance of these particular firms. Another way of gaining exposure is through broad-based collective funds within the technology sector, which spread investments among dozens of different companies.

For example, the Henderson Global Technology fund includes Apple and Microsoft among its top 10 holdings, whilst Fidelity’s Global Technology includes investments in Intel Corporation. However, please note that our mentioning these funds should not be considered a recommendation and if you’re unsure where to invest, you should seek professional financial advice.

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The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

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